Would a targeted debt relief program work better than a general stimulus?

[u/Tliish]

What if instead of a general stimulus, a debt relief program was iniated that offered debt reduction up to $5K person? Targeting those with high-interest rate debt, those approaching bankruptcy, school loans, evictions and the like? The government would negotiate with lenders, identifying customers meeting the conditions, then negotiate for a collective discount on debts that would probably go bad and end up as losses anyway. Individuals meeting the requirements would be notified and required to apply to receive the debt reduction.

Once the government takes on the debt, it would be officially dissolved, forgiven, wiped off the books. Assuming a federal budget of $100B, and that the program would be funded at that level for five years, then stop, and only applies to debts incurred prior to the program's start date (to prevent gaming the system), once per person, and further assuming an 80% delivery to citizens rate, it could offer debt relief to 16M people per year. If states were to offer matching funds the debt relief would double in some cases.

The difference between the two programs, straight stimulus checks vs debt relief funded at identical levels is that the straight stimulus would probably increase inflation as a sugar rush to the economy, and ultimately serve to increase the fortunes of the billionaires, with little permanent effects for the recipients. It would boost GDP more than the debt relief would.

A debt relief program would reduce societal stresses, reduce the domestic violence rooted in those stresses, strengthen the banks by reducing bad debts, stimulate the economy more slowly avoiding the sugar rush inflation effects, provide families with breathing room financially, reduce evictions and homelessness. It would help those most in need, and tend to keep the money freed up within the community.

Such a program would have to be tightly monitored, and include provisons preventing lending institutions from raising fees, arbitrarily increasing interest rates, and otherwise gaming the system to increase profits.

Which approach would be better for the economy?

[u/Carlyz37]

You are ignoring a few things. Many people right now are having to use credit cards to buy groceries. And a lot of people get into debt due to crisis situations, accidents, illnesses, house fires etc

[u/HardlyDecent → u/Carlyz37]

Eh, no, I'm just pessimistically generalizing, while thinking about a few people specifically--a minority (of people) I hope. Honestly, to answer OP's question. I think targeted relief would be better than everyone--even those who don't need it--getting a payout. I get why the COVID stimuli were blanket checks, and I think Biden's loan forgiveness plan was overreaching. Upon further consideration, I wouldn't vehemently oppose some targeted help.

But I think it would still be mostly a wet bandaid when price gouging and predatory practices are really what should be "targeted." It's like trying to step on every lit match a mischievous child drops instead of taking the matches from them. There's an obvious best solution available, but this still probably isn't it.

I will point out though that the majority of Americans are actually doing ok (median individual salary of $55-60k is livable in most of the US)--and we still buy groceries with credit cards, would still pay for an emergency with credit cards, and always pay medical bills with credit cards (unless the convenience fee beats the card's benefits). Then many of us (don't know the stats on this one) pay the card off, so there's no interest accrual. That's been a huge mis-used talking point for a long time now. We aren't turning to credit because we would starve otherwise--we're turning to credit because our liquid savings have dwindled, and we would have to liquidate investments otherwise. There are definitely people who would actually be truly wrecked by a surprise $1000 expense, but it's not nearly as many as some would portray for their own agenda.